Sep 10, 2021
We have set out below a simple checklist that you can use when negotiating a construction contract to ensure that you have considered and discussed the important legal issues prior to entering into the contract. Below the checklist, we also set out three key things to keep in mind during the project work, and two key things to be on top of following the completion of the works.
Before You Sign the Contract
There are a number of key clauses that every properly drafted construction contract should contain. These clauses are vital to set the payment mechanisms, agree on the scope of works, fairly allocate risk between the parties, and provide efficient mechanisms to resolve variations and disputes.
The below is a simple checklist that sets out the eight most important clauses you need in your construction contract. We suggest that prior to entering into any construction contract the parties sit down and discuss at least these eight points and understand how they are addressed in the contract.
how and when will payments be made during the project and what is the process to challenge invoices
Scope of works
Define the construction work required on the project and the finished product. Defining this upfront with as much precision as possible (including technical drawings where available) helps avoid future disputes
Additional work always arises during construction projects. It is important to agree how any additional work that is not included in the scope of works be agreed on and valued
Define a time period for the project, including key milestones where appropriate, and when progress payments will be due. Agree on any reasons for extending time.
In order to manage the risk does the project require bonds, retentions, guarantees, and insurance.
Agree a defects liability period to identify & remedy defects after completion
Ensure liability is not unreasonably limited and allocation of risk for things going wrong is fairly apportioned between the parties
Agree on an efficient and timely way to raise and resolve disputes
Customise your contract
As each construction project is unique, in addition to the standard terms set out above, there maybe a number of tailored terms that will benefit your project and what you wish to achieve.
A few examples include:
- Resource consent/building consent – who is responsible for this?
- Subcontracting – who can instruct subcontractors and when?
- Responsibilities of the parties to the contract – liability for signing off completion documents
- Type of contract – turn key, build-only or design and build
- Extension of time – what happens if the project is delayed or runs over the completion date?
- Various types of payment plans – lump sum, measure and value, cost plus
- Retentions – how much? When are they to be paid out?
- Indemnity clauses
If you want further advice on any custom clauses for your contract, please contact the team at Axis Construction Law for further advice.
During the Project
Changes/Variations to the Contract
Ensure that any variations or changes to the scope of works during the life cycle of the project are made in writing and follow the mechanisms agreed in the contract. Think about getting independent advice as to the price and basis for any material variations and, where possible, get an agreement on these before implementing the change/variation.
If the contract allows for payments to be made during the project, make sure you are on top of (1) the frequency payments are due, (2) for how much (be mindful that the amount may change subject to variations), (3) the amount being paid/charged is correct (is there sufficient evidence of additional costs charged?), (4) the process to be followed if the amount charged is challenged.
Disputes often arise in construction and it is vital the contract includes a quick and efficient dispute resolution process that can assist if you have a disagreement during the construction phase of the project. If you are unsure how best to approach a dispute, contact the team at Axis Construction Law for further advice or refer to our blogs on our website for further information.
Completion of the Project
Defects Liability Period
Familiarise yourself with when and how long the defects liability period runs for after completion of the project and that you are happy with the timeframe proposed. Make sure you know the size of any retentions to be held back during the defects liability period and when they are to be paid. Think about instructing an independent construction expert to review the work during the defects liability period to confirm it is up to standard and free of defects.
Refer back to the dispute resolution clauses in the contract and try to deal with the dispute effectively and efficiently via the contractual dispute resolution clauses. If you are unsure how best to approach a dispute, contact the team at Axis Construction Law for further advice or refer to our blogs on our website for further information.
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